AI: Meta's AI tools business for Advertisers. RTZ #455
...an important AI mega-revenue generator for Meta, Google and others
Meta continues to leverage AI technologies with its Advertisers better than most of its peers thus far in this AI Tech Wave. As I’ve discussed before, Meta has two major ‘customers’ for its online platforms Instagram, Facebook, WhatsApp and others: its Advertisers on these platforms, AND the two billion plus end users globally of these platforms.
And the scale of this AI monetization remains impressive. And the online advertising business for Meta, Google and others, is ‘dark beating heart of the internet’, as described by author Tim Hwang.
Especially as it continues to invest billions in AI infrastructure from Nvidia and others.
Axios highlights this activity in “Meta's ad biz booms with AI”, where this ability to use AI tools to enhance advertising revenues for its advertisers across its platforms shows up in impressive ‘revenues/employee’ for the company:
“Each Meta employee, on average, accounted for more than $1 million in revenue in the first half of 2024, a company record.”
“Why it matters: Meta made steep cuts in late 2022 and early 2023, but they haven't impacted its business growth — thanks in large part to AI-driven improvements to the social media giant's recommendation system and ads platform.”
“Catch up quick: Apple's changes to its app-tracking policies in 2021 caught Meta so off-guard that it had to issue a rare update in between regular quarterly earnings reports to warn investors of the changes' impact on its business.”
“Yes, but: Fast forward three years, and Meta's business isn't just the biggest it's ever been — it's also the most efficient.”
There were specific catalysts to this state of affairs, not the least were Apple privacy related moves in 2021 that impacted Meta to the tune of $10 billion plus, accelerated this AI tools for Advertisers capabilities:
“State of play: Despite new experiments like subscriptions and virtual reality hardware, the majority of Meta's business has always been, and will continue to be, advertising. (Advertising made up 98% of Meta's revenues in Q2 of this year.)”
“Meta's ad business was primarily focused on the desktop until the smartphone became ubiquitous in 2014. Its mobile ad business has grown consistently, but faced a real threat in 2021 with Apple's privacy changes.”
“Advertisers reliant on app data from Apple could no longer reliably use that data to target ads on Facebook.”
And that got us to Meta ‘Advantage+’, which has had impressive results for the company:
“That prompted Meta to build a suite of new AI-driven ad tools called Advantage+.”
“Today, almost all of Meta's millions of advertising clients use at least one of the Advantage+ products, a spokesperson said.”
“The Advantage+ AI tools help advertisers choose targets and optimize placement more easily and efficiently.”
“A Meta-commissioned study of over 1 million U.S. advertisers, presented to clients in June, found that one dollar of investment per advertiser will now generate $3.71 in return for that advertisers' business, a 12% increase since 2022.
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“Between the lines: AI-driven content recommendations are also increasing users' engagement with the firm's products, driving more ad inventory.”
“Ad impressions across delivered Meta's family of apps (Facebook, Instagram, Messenger, WhatsApp and Threads) increased by 10% year-over-year during the second quarter of 2024. The average price per ad, which is driven by demand, increased by 10% year-over-year.”
“More than 50% of the content people see on Instagram is recommended by AI, the company announced in April. (Reels alone makes up around 50% of time spent on Instagram.)”
“Meta chief financial officer Susan Li said on Meta's most recent earnings call that the company is starting to test a feature that allows businesses to use AI in their chats with customers to help sell their goods and services and to generate leads.”
Here’s the bigger picture of these AI tools for advertisers for Meta to date:
“The bottom line: Meta's business might never have recovered from Apple's 2021 changes and 2022's advertising industry slowdown if it hadn't rebuilt its recommendation engine and ad platform around AI tools.”
“What's next: Meta's next big investment will be developing genAI products that allow advertisers to make and test many new iterations of ads' creative content.”
"Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we're going to go do the rest for them. We're going to get there incrementally over time, but I think this is going to be a very big deal," CEO Mark Zuckerberg told investors in July.”
I focus on this topic, because what Meta is able to do with AI tools for its advertisers and advertising revenues, is something that applies broadly to its peers like Google, Amazon and others. They of course also have impressive global online advertising businesses. Those tools will be different in their details and deployment, but their impact will also be meaningful over time.
AI tools for advertisers are important new ‘AI Applications’ and services that are important in Box 6 in the ‘AI Tech Stack’ above. As important for companies like Meta, Google, Amazon and others, as AI applications used by end users.
And these ‘AI tools’ are thus an important precursor to how AI gets monetized going forward, a question of some important to investors today.
It needs to be acknowledged particularly as Meta and others invest tens of billions in AI capex to Scale out AI in this AI Tech Wave.
It’s another non-obvious way that Meta can leverage its ever increasing investments in open source LLM AI models like Llama 3.1 and beyond. And allow Meta to continue to ‘throw sand in their gears’ of its LLM AI peers and competitors. Stay tuned.
(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)